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Installment Loans vs. Payday Loans: Costs, Terms and Which Is Safer

By Published Updated 7 min read

A payday loan is usually a small loan due in one payment on or near your next payday. An installment loan is repaid in several scheduled payments. Which is safer depends on the total cost, the length of the term, how fees are structured and what your state allows. Neither label guarantees a better deal.

How the two loan types differ

Payday loans are short-term loans, often repaid in a single payment. In many states the lender holds a postdated check or electronic access to your bank account. The charge is usually a flat fee, such as a set amount per $100 borrowed. If you cannot pay the full amount when it is due, some lenders allow a renewal or rollover for another fee, though many states restrict that.

Installment loans are repaid in equal or scheduled payments over weeks, months or years. The cost is usually interest, sometimes plus origination, processing or monthly fees. A longer schedule means smaller payments, but you may pay charges for more months.

What regulators report about cost

Texas publishes data by loan type. The Texas Office of Consumer Credit Commissioner (OCCC) reports on credit access businesses, which arrange these loans in Texas. For the second quarter of 2026 it reports:

Texas payday loan type (OCCC, Q2 2026)Average fee per $100Average loanAverage term
Single-payment$26.76$56918 days
Installment$163.09$606133 days

Our conversion into dollars: $26.76 per $100 on a $569 loan is about $152 in fees over about 18 days. $163.09 per $100 on a $606 loan is about $988 in fees over about 133 days. The OCCC figures cover the credit access business fee, so your own disclosure may show other charges.

This is a useful reminder that a payday installment loan is not automatically cheaper. The payments are smaller and spread out, but in these Texas averages the total fee is much larger. Texas also sets no dollar or percentage limit on credit access business fees. The statute says fees may be charged as agreed with the consumer, as long as they are disclosed (Tex. Fin. Code § 393.602(b)).

Other states report different numbers for different periods, so they cannot be compared directly with Texas:

  • Alabama (2024, State Banking Department): average payday advance of $389.51, average fee of $67.99 and average term of 20.6 days.
  • Washington (2025, Department of Financial Institutions): average payday loan of $464.96, average fee of $56.40, average term of 43 days and a default rate of 10%.
  • Ohio (2022, Division of Financial Institutions): average charges of $50.95 on an average loan of $496.15, with an average contracted APR of 110.68% (excluding one company).
  • Missouri (October 2023 to September 2024, Division of Finance): average payday loan of $300.94 with an average interest rate of 406.26%.
  • Colorado (2022 to 2024 supervised lender report): average APR on closed-end installment loans of 21.94% in 2022 and 21.83% in 2023.

The Colorado installment figures are far lower than the payday APRs reported elsewhere, but they come from a different state, product and set of rules. Our guide to how APR works explains why short loans with flat fees produce very high APRs even when the dollar fee seems small.

What state law changes

Caps and structure differ widely. Some examples, in plain words:

  • Florida payday loans. A single-payment payday loan can have a check face amount of at most $500, and fees are limited to 10% of the cash or payment instrument you receive. A payday installment loan can have an outstanding balance of at most $1,000, with fees of no more than 8% of the outstanding balance on a biweekly basis. You must wait 24 hours after one payday loan ends before taking out another, and rolling a loan over is prohibited (Fla. Stat. § 560.404). See Florida payday loans.
  • Florida installment loans. A licensed consumer finance company can lend up to $25,000 under chapter 516, at up to 36% a year on the first $10,000 of principal, 30% on the part from $10,000 to $20,000 and 24% on the part from $20,000 to $25,000.
  • Virginia. Short-term (payday-style) loans can be at most $2,500, with simple interest up to 36% a year, a monthly maintenance fee of the lesser of 8% of the original loan or $25, and a late charge of no more than $20. Consumer finance company installment loans run from $300 to $35,000, lasting 6 to 120 months, at up to 36% a year on the unpaid balance, plus a processing fee of the greater of $50 or 6% of principal, never more than $150. See the Virginia directory.
  • Texas. Payday and title fees follow the credit access business rules above. Regular consumer installment loans under Chapter 342 have add-on interest caps of $18 per $100 per year on the first tier and $8 per $100 per year on the second tier, up to a $2,500 reference amount (both adjusted under Chapter 341). See Texas payday loans and Texas installment loans.
  • Delaware. No statutory rate cap on short-term consumer loans. A short-term loan can be at most $1,000, with no more than four rollovers.
  • Montana and South Dakota. Montana caps payday (deferred deposit) fees and consumer loan interest at 36% a year. South Dakota's Initiated Measure 21 caps total interest, fees and charges for state-licensed money lenders at an APR of 36%.

For a state not listed, use the lender directory and your state regulator's website.

Rollovers, renewals and repeat borrowing

Costs rise when a loan is renewed or replaced. Some states limit this: Iowa, Kansas and Minnesota restrict repaying a payday loan with the proceeds of another from the same lender, and Missouri allows at most six renewals, each requiring at least 5% of the original amount to be paid down. North Dakota allows one renewal only, with a renewal fee of up to 20%.

Some states require a payment plan option. In Kansas and South Carolina, a borrower who cannot repay can choose an extended payment plan of at least four substantially equal installments at no extra cost, once every 12 months. See also can you get more than one payday loan.

Refinancing is common in Texas. For 2025, the OCCC reports 46,129 single-payment payday consumers and 57,610 refinances originated in the year, and 1,208,226 payday installment consumers with 196,448 refinances.

Which is safer?

There is no honest one-word answer. Compare the loans on these points:

  1. Total cost in dollars. Add every fee and every month of interest. Texas averages show a payday installment loan can cost far more in total than a single-payment one, even though each payment is smaller.
  2. Term length. A short loan is cheaper in dollars if you can repay it on time without borrowing again. A longer term helps only if the charges do not keep adding up and the payments fit your budget.
  3. Fee structure. Interest charged on the unpaid balance (as Virginia requires for consumer finance installment loans) falls as you repay. Flat fees and add-on interest may not fall, and monthly fees continue for the whole term.
  4. State caps. A loan in a state with a rate limit has a ceiling on its cost. A loan in a state with no cap, such as Delaware, does not. Check whether the lender is licensed and which rules apply.
  5. Your ability to repay. The safest loan is one you can repay on schedule without needing another loan to cover the gap.

So an installment loan capped at 36% in a state with licensing is likely to cost less than an uncapped payday-style loan, but a long, high-fee installment loan can cost more than a short payday loan. Read the contract and compare the total repayment.

Questions to ask before you borrow

  • What is the total I will repay, in dollars, and by when?
  • What is the APR, and are there processing, monthly or late fees?
  • Can I repay early without penalty?
  • What happens if I cannot pay, and does my state require a payment plan?
  • Is the lender licensed in my state?

Before borrowing, consider a small-dollar loan from a credit union, a payment plan or extension from the company you owe, or local assistance programs. Terms and availability vary.

Frequently asked questions

Is an installment loan always cheaper than a payday loan?

No. In the OCCC's Texas data for the second quarter of 2026, the average fee per $100 for payday installment loans ($163.09) was higher than for single-payment payday loans ($26.76), and the term was much longer. The reverse can be true elsewhere. Colorado's reported installment APRs, for example, are far lower than payday APRs.

Do payday loans have an APR?

Yes. A flat fee on a short loan converts to a high APR. Our APR guide shows how it works.

Are payday loans legal in every state?

No. Arizona's payday lending law expired in 2010, and the District of Columbia no longer authorizes payday loans by check cashers. Check your state's current rules.

What about title loans?

A title loan is secured by your vehicle, which adds the risk of repossession. See title loans explained.

Sources

We are not a lender. Rules change; check your state's current rules and the lender's own disclosures before you borrow.

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